The Senate omnibus tax bill, which should be released this week, is likely to be very different from the House version.
(Published Apr 27, 2015)
The House omnibus tax bill, HF 848, which includes economic development, local government aid (LGA), and sales tax provisions, is on its way to the House floor for final action. The full House is expected to consider the bill on April 29.
The House Taxes Committee completed its work on HF 848 on April 21. The bill then went to the House Ways and Means Committee, which amended and approved the bill on April 24, sending it to the House floor.
The Senate is expected to release its version of the bill early this week and then take public testimony and consider amendments by mid-week. The Senate bill is expected to be substantially different from the House version.
The following is a brief summary of items of interest included in the House omnibus tax bill.
The bill includes a version of the League-supported workforce housing tax increment financing (TIF) authority for cities located outside the Twin Cities metropolitan area. To qualify for the authority, a city must meet the following requirements: an average vacancy rate for rental housing in that city or any other city within 15 miles that is 3 percent or less for at least the last two years; a business in the city or within 15 miles of the city that employs 20 or more full-time equivalent employees must provide a written statement that the lack of available rental housing has made it difficult to hire employees; and intention of the city to use increments to develop workforce housing.
The bill also includes a provision that allows the higher income limits under the Minnesota Housing Finance Agency (MHFA) Housing Challenge Program to be used for housing TIF districts, if the project receives an MHFA grant or loan. Similarly, if the project receives a grant from the Department of Employment and Economic Development for workforce housing, the income limits under the grant, if any, would apply instead of the limits under the TIF statute.
The bill contains a number of clarifying and minor changes in the TIF statute, as requested by the League of Minnesota Cities Development Finance Task Force. These changes would expand the ability of taxing authorities to use increment to pay for necessary operation and maintenance of properties within TIF districts, and clarify when and whether interfund loan resolutions are needed for interfund loans. The language was drafted with significant input from the state auditor and legislative staff, and strike a balance between increased flexibility and transparency.
Special law TIF changes for to the cities of Cottage Grove, Eagan, Richfield, St. Paul, and Wayzata are also included.
Local government aid
The bill does not increase the LGA appropriation beyond the current law $2.5 million appropriation increase for the 2016 distribution. The bill places a permanent per capita limit on the LGA distributions to first class cities. As a result, Minneapolis, St. Paul, and Duluth would see cuts totaling roughly $85 million from the total currently received by those cities. In the Ways and Means Committee, the bill was amended to slightly accelerate the annual distributions of LGA to cities over 80,000 in population to provide those cities with roughly 21 percent of their July distribution in June. The acceleration affects Minneapolis, St. Paul, Rochester, Duluth, and Bloomington.
The bill includes new requirements that local government referenda, including those by cities, must be conducted on the first Tuesday after the first Monday in November of even- or odd-numbered years, to coincide with the annual general election date. This requirement does not affect special elections of people to office and provides a League-suggested exception for a referendum to finance a local government’s response to a disaster or emergency. These elections could be held on another date.
The bill also adds a new general levy referendum requirement that allows citizens to petition for a referendum if a county or city with a population of 500 or more increases its property tax levy in any year. The referendum would be triggered in the year following the levy increase, and if voters do not support the increase, the city’s levy would revert to the level two years prior, with some exceptions for debt service.
The bill also includes a provision that allows for a reverse referendum on whether a city (excluding first class cities), county, or urban town may enter into a lease of three or more years for real property with a housing and redevelopment authority, port authority, economic development authority, or other entity established by special law with powers similar to those authorities.
For businesses and cabin owners, the bill includes an exemption for the first $500,000 of each commercial-industrial parcel and the first $200,000 of each seasonal-recreational (cabin) parcel from the state general levy. The exemption is coupled with a reduction in the state property tax levy so that the cost is not shifted to other properties. The first-year cost of the exemption and related state property tax levy reduction is $135.5 million.
The bill also completely phases out the remaining state general levy over seven years. The fiscal year 2016-2017 biennial cost of the exemption mentioned above and the phase-out of the state property tax levy is more than $400 million.
The bill would move the proposed levy certification deadline for special taxing districts to Sept. 30 to be consistent with cities, counties, and school districts. This League-sponsored change was included in HF 457 (Rep. Jon Applebaum, DFL-Minnetonka).
Finally, the bill allows a portion of state general levy revenues to be paid to a municipality having a net fiscal disparities contribution exceeding 8 percent of its tax base, if the municipality is within the metro area but outside the transit taxing area. This provision is related to HF 135 (Rep. Joyce Peppin, R-Rogers) at the request of the city of Rogers to limit its fiscal disparities contribution to 10 percent of the city’s net tax capacity.
Sales and use taxes
The bill includes the League-supported sales tax exemption simplification for purchases of construction materials made by a contractor, subcontractor, or builder under a lump sum contract for buildings and facilities used directly by local governments. Under the exemption, the contractor, subcontractor, or builder must pay the sales tax at the time the materials are purchased, and the owner of the facility must apply to the Minnesota Department of Revenue for the refund. Effective for sales and purchases made after June 30, 2015.
The City of Mora received a sales tax exemption for construction materials, supplies, and equipment used in the municipally owned wastewater treatment facility. Exempt materials must be purchased between Jan. 1, 2015 (before the effective date of the general exemption above) and Jan. 1, 2017. The exemption applies to purchases by the city, or a contractor, subcontractor, or builder; however, the tax must be paid at the time of the purchase of the materials, and the city must apply for the refund. Money is appropriated from the general fund to pay the refund.
The bill also includes a provision that provides a sales tax exemption for sales at and admissions to a city-designated annual celebration to promote community spirit. To qualify for the exemption, the following conditions must be met:
Finally, the bill includes an exemption for purchases of construction materials and supplies and equipment incorporated in the improvement of an existing structure at a resort or a private or public campground. The structure may be a cabin or any other structure for use by the resort guests or the campers. The exemption does not apply to construction of new buildings. This would apply to materials regardless of whether purchased by the resort or campground owner or a contractor, subcontractor, or builder. Effective for sales and purchases made after June 30, 2015
The bill also includes:
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